Phoenix Industrial Sector Finishes 2016 With Solid Footing

PHOENIX - Jan. 12, 2017 - PRLog -- By all accounts, the Phoenix industrial sector fared well in 2016. This wasn't a standout year compared with the previous two years, however, indicators point to a solid foundation with modest momentum moving into 2017. Most industrial indicators this year showed growth, including net absorption, construction and rising lease rates

The industrial vacancy rate has remained mostly flat over the past few years due in part to approximately 17M SF delivered to inventory. Many speculative projects have been completed with vacancies, which in turn offset leasing gains. Leasing activity for multi-tenant space has been persistent, especially under 25,000 SF. Fortunately, most of these new buildings are multi-tenant and have shown healthy lease-up rates compared with single tenant distribution facilities.

Overall vacancy rate remained at 10.0% for the quarter. Both the Northwest and Northeast Valleys posted the lowest vacancies at 5.6% and 6.5%, respectively. Net absorption for the quarter was 2,305,766 SF, which was the highest quarterly number of the year. The cumulative total for 2016 was 5,634,562 SF.

Asking rental rate averages continue to increase modestly. Overall fourth quarter rates improved by 1.8% to $0.56 per SF, per month. The Southwest Valley led the way with 2.8% overall.

Construction activity settled at 3,858,105 SF for Q4 and is a sharp increase from last quarter's 2,513,228 SF. Most speculative building currently underway is for multi-tenant properties, which are most in demand. Completions this quarter were over 1M SF and nearly 5.8M SF for the year. A strong construction pipeline in the Valley shows confidence in future market conditions.

The largest new lease transaction for the quarter was Availl Services lease of 323,345 SF at West Valley Distribution Center II, 605 N. 75th Ave., Phoenix.

The largest sales deal in Q4 was Huhtamaki, Inc.'s $42.9M purchase of the 752,808 SF manufacturing facility at 4320 S. Cotton Ln., Goodyear. Price per SF was calculated at $56.92.

The Phoenix industrial market has proven to be the most resilient among
CRE sectors. Quarter after quarter, the sector moves closely with the economy by shifting subtly, but rarely overreacting. The sector is expected to do well this year if current economic conditions prevail or improve in the coming year.

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